Using a Genetic Program to Predict Exchange Rate Volatility

Abstract

illustrates the strengths and weaknesses of genetic programming in the context of forecasting out-of-sample volatility in the DEM/USD and JPY/USD markets. GARCH(1,1) models serve used as a benchmark. While the GARCH model outperforms the genetic program at short horizons using the mean-squared-error (MSE) criterion, the genetic program often outperforms the GARCH at longer horizons and consistently returns lower mean absolute forecast errors (MAE).